Daily Newsletter, Sunday, 9/16/2012

Table of Contents

Leaps Trader Commentary

Bernanke Is "All In"

by James Brown

Federal Reserve Chairman Ben Bernanke is "all in". If you have ever played or watched a no-limit poker game then you are already familiar with the term. Going "all in" is when the player puts his entire stash of chips into the pot. The player is betting everything he has that his hand is the winning hand. Of course the other players don't know if the guy going all in is bluffing or whether he really has the winning hand. Right now stock market bears are folding their poker hands and covering positions. The shorts are not willing to see if Bernanke is bluffing and stocks surged higher on short covering once again. Now the major U.S. indices are at multi-year highs.

There were plenty of headlines this past week. Economic data continues to come in mixed with both bullish and bearish readings for the economy. The German courts did not strike down the ESM bailout fund. Opponents of the ESM facility had argued it was not constitutional under Eurozone and German agreements. This legal win was bullish for stocks and allowed the ECB and Eurozone leaders to continue with their current attempts to solve the Eurozone crisis. Also making headlines was Apple Inc.'s (AAPL) new iPhone 5 launch. The company said its online pre-orders for the new phone sold out in one hour. There was so much demand that delivery of pre-ordered phones has been delayed to October 5th or later. Apple is still taking orders if you walk into their stores and put down a $50 deposit. A few analysts are speculating that lines of consumers waiting to pick up or buy the new iPhone will be the longest yet.

The biggest story of the week was the FOMC meeting and Chairman Bernanke's announcement of new quantitative easing. It seems that most of the market's active participants were expecting Bernanke to disappoint on Thursday. They expected he would talk about adding QE down the road if needed or he might announce another limited QE program, maybe extending Operation Twist. Essentially, many traders were expecting the market to sell-off on a disappointing announcement from the Fed. Instead everyone was surprised by the chairman's new program.

You have heard the term that the Federal Reserve only has one bullet left in its arsenal of tools to try and stimulate the economy. Others have referred to the Fed using QE as a bazooka to really kick start the economy. This new QE program is the "nuclear" (weapon) option. As I said before, Bernanke is all in and throwing everything he's got. Instead of QE3 the markets got QE-infinity.

The Federal Reserve will now start buying $40 billion worth of mortgage backed securities (MBS) a month. This is on top of the $45 billion a month the Fed is buying in U.S. bonds through Operation Twist. While Twist is scheduled to end at the end of 2012 there is no end date for this new QE3 program. Bernanke's Fed will continue to buy MBS at $40 billion a month until the economy and unemployment improve. Furthermore the Fed has extended the time horizon they see for super low interest rates from 2014 to the middle of 2015. Some of the FOMC members have even suggested that low rates could last until 2017.

Why would the Fed launch such a big stimulus campaign now? The conspiracy theorists out there would suggest that Bernanke is trying to help President Obama win because if Romney wins then Bernanke will likely lose his job. Many are surprised that the Fed would launch a new QE program this close to the presidential election since usually the Federal Reserve likes to take no action ahead of an election so they can appear politically neutral.

Others have argued that the Fed is doing this now because they are trying to mitigate the impact of the coming fiscal cliff this January (2013). That could be true. I don't have a lot of faith that our current House and Senate will address the fiscal cliff issue before the end of the year. Bernanke knows that the fiscal cliff could cut between -1.5% to -4.0% off the U.S. GDP. By launching his QE-infinity now he could be trying to prep the economy for this "cliff" in 2013. If the U.S. falls into another recession it's going to be a brake on the rest of the world, which is already struggling.

There are plenty problems with the Fed's new QE program. In the press release after the FOMC meeting Bernanke specifically stated that he is trying to raise asset prices so consumers feel wealthier and thus are more inclined to spend more. That could have a lot of unintended consequences. The fact that Bernanke is trying to push stocks higher should be bullish for the market. Instead of a "Bernanke Put" to protect the market from a dramatic sell-off we know have a "Bernanke Call" because he is betting on higher prices.

Bernanke also said he was trying to raise home values. We can assume he wants to help keep the current rebound in real estate alive. Is he worried about a flood of bank-owned homes (a.k.a. shadow inventory) hitting the market soon? Is this just the make consumers feel wealthier plan? A large number of consumers are currently underwater on their mortgage (e.g. their house is worth less than their current mortgage). Rising home prices will certainly help. However, wasn't a housing bubble what caused this financial mess in the first place? If we artificially inflate home prices now what happens down the road? Interest rates won't be this low forever. What happens to real estate when interest rates rise to a more normal level and instead of a 30-year fixed mortgage at 3.5% they hit 7%?

The Fed now sees low interest rates through the middle of 2015 and some Fed members think it could be 2017. Hello? Does anyone else see the similarities to Japan's "lost decade" since Japan started a near zero percent interest rate policy back in 1999?

The Federal Reserve is essentially printing digital dollars to buy billions of MBS or U.S. bonds. This extra printing of dollars devalues the currency. What happens when there are too many dollars and the dollar's value is worth less and less? It takes more dollars to buy things, especially commodities. We've already seen a surge in commodities like copper, silver, gold and oil. This up trend in commodities will likely continue since there is no end to the Fed's new QE infinity program.

Food is going to cost more. Materials will cost more. Rising oil means rising gasoline prices. The national average for gasoline in the U.S. just hit $4.00 a gallon in the second week of September. That is the highest in our country's history. If gas is at $4.00 a gallon now what happens when it's $4.50 or $5.00 a gallon? The Fed is trying to make consumers feel wealthier so they will spend more but if gasoline prices remain elevated it could directly undermine this plan. When it costs $100 to fill up your gas tank you're not going to feel very wealthy.

Another potential fallout from this QE program is the U.S. credit rating.
Moody's has warned that they will downgrade the U.S. credit rating again if we don't do something about our growing debt to GDP ratio soon. Egan Jones has already downgraded the U.S. rating from "AA" to "AA-" thanks to the Fed's new QE program.

We might want to ask ourselves if QE actually works? We've seen the effects in the stock market, which has been generally positive, but what about the economy? This country has seen more QE programs in the last few years than ever before. Yet unemployment has remained above 8% for the longest length of time since the Great Depression. The number of Americans at or below the poverty line is at its highest level in 70 years. There are almost 48 million people in this country on food stamps, the highest number ever. Small business growth is at a 40-year low. I don't care what your political affiliation is, those are some compelling figures that suggest QE is not working for a large part of the U.S.

Major Indices:

The S&P 500 index has rallied to levels not seen since 2007. It's only about 110 points from its all-time high of 1576. We've seen the S&P 500 rally almost 200 points just since the June lows. As I said last week the path of least resistance is up but stocks don't move in a straight line for very long.

Broken resistance near 1440 should be new support. We can look for potential resistance at 1475, which the S&P 500 almost touched on Friday. Odds are very good the 1500 level will be round-number, psychological resistance. If sentiment suddenly sours and the market reverses then look for additional support near 1420 and the 1400 levels.

The S&P 500 index is up +1.9% for the week and up +16.5% for the year.

chart of the S&P 500 index:

The NASDAQ's rally continues to push the index to levels not seen since the year 2000. This past week produced a +1.5% gain and the composite index is up +22.2% for the year. Big gains in high profile tech companies like Apple (AAPL) have played a big role in lifting the NASDAQ.

I would look for short-term support near 3135 and slightly stronger support at 3100. Looking back at the year 2000 it is tough to see what could be support and resistance because the index was so volatile back then. I do see potential resistance at 3200 and probably 3350. Although just looking at the last several weeks we can probably expect support/resistance at even 50-point marks like 3150, 3200, 3250, etc.
The prior 2012 highs near 3125 should offer some support as well.

chart of the NASDAQ Composite index:

The small cap Russell 2000 index has been very strong these last two weeks. Now only has the $RUT broken through resistance near 840 and the 850 levels. The index tested its all-time high near 868 from May 2011 on Friday. On a short-term basis the $RUT is overbought and due for some profit taking. The trend is up so the question is where will traders buy the dip. I would focus on the 850-840 area as the spot to look for support and a potential entry point to buy a dip.

Daily chart of the Russell 2000 index

The Dow Jones Transportation Average has seen a very dramatic reversal higher. Two weeks ago this sector was breaking down. Dow Theory suggests we can't have a sustain market rally without participation from the transports. Suddenly, the index turned around. The $TRAN has seen a seven-day, non-stop rally higher. It's gone from a bearish breakdown under a supporting trend line to a bullish breakout past a trend line of resistance. That is pretty impressive when you consider that FedEx (FDX) issued an earnings warning about two weeks ago and the price of oil has risen to new relative highs.

Daily chart of the Dow Jones Transportation Average

We have a busy week of economic events but nothing to compare to the FOMC meeting last week. This weekend, the 15th and 16th of September, held a Eurogroup meeting and an EU finance ministers meeting. There are a number of headlines from Europe coming up. Germany's ZEW report could make headlines. The Eurozone PMI could make headlines. ECB President Draghi speaks on Thursday. Meanwhile the NY Empire state survey on Monday and the Philly Fed on Thursday will be the main reports for the U.S. this week. If the Chinese PMI data on Wednesday disappoints it could move stocks.

Also in September, the IMF will release their review of Greece. Plus, the U.S. will likely hits its debt ceiling again (this time over $16 trillion).

The Week Ahead:

Looking ahead the best plan is probably following an old market maxim, "don't fight the fed". The Fed has made it clear that they want asset prices to go up. We don't have to chase stocks but buying-the-dips is probably a good plan. We do need to be aware that mutual fund window dressing could play a role in market performance. September marks the end of the third quarter. Yet the end of October is the year-end for many mutual funds. Both the end of September and October could see a lot of window dressing. The market is up strong this year and fund managers don't want to be sitting on a lot of cash and they don't want to look like they have missed the ride higher either. This is another reason that money will probably be buying the market's dips.

The fly in our bullish soup is probably earnings season. We've already seen market heavyweights like FedEx (FDX) and Intel (INTC) issue earnings warnings. We only have three or four weeks before Q3 earnings season begins. That means we could see a rash of earnings warnings before September is over. Right now analysts are expecting Q3 earnings to see a -3% decline over a year ago.

I remain bullish but suggest investors start with small positions when you see an entry point and slowly add to it if it moves in your favor.
Just because Mr. Bernanke has gone "all in" doesn't mean we have to. He's playing with the casino's money. We don't have that luxury.

New Plays

iPhone Components

by James Brown

Why We Like It:
ADI is an American semiconductor manufacturer. Investors are completely ignoring the company's earnings warning when ADI reported back in August. It's probably because ADI is a component maker for Apple's (AAPL) iPhones. The surge in demand for iPhones should spell strong business for ADI.

I am suggesting new bullish positions now at current levels. Nimble traders may want to try and buy a dip near $41.00 if we get it. Our long-term target is $49.75.

Closed Plays

URBN hit our target.

Play Updates

Abbott Labs - ABT - close: 68.27

Comments: 09/15/12 update:
ABT rallied to new all-time highs with Thursday's advance to $69.27. Shares hit some profit taking on Friday. More conservative traders may want to start taking profits if you are holding the 2013 calls, which have virtually doubled for us.

On a short-term basis I would expect ABT to pull back toward the $67-66 area. Please note that I am raising our stop loss up to $62.75.

Earlier Comments:
Before we continue I want to warn you that trading the drug makers or biotech stocks has an industry-specific danger. You never know when an FDA approval might get denied or delayed. Or some clinical trial data might disappoint. Headlines like these can send a stock gapping down. On the other hand positive news could send it soaring.

09/15/12 new stop loss @ 62.75
07/14/12 ABT is due to report earnings on July 18th
07/02/12 ABT opened at $64.22
06/29/12 ABT closed @ 64.47. Plan was to wait for a close over $63.50 and buy calls the next day. We will open positions on Monday, July 2nd.

Current Target:$74.00
Current Stop loss: 62.75
Play Entered on: 07/02/12
Originally listed on the Watch List: 06/23/12

American Intl. Group - AIG - close: 35.02

Comments: 09/15/12 update:
Not surprisingly there was some volatility in AIG's stock surrounding the U.S. Treasury Department's sale of $18 billion in stock. The U.S. government has reduced its stake from a majority stake to just 16% of AIG's outstanding shares. AIG saw a spike down toward technical support at the 50-dma and then bounced. The stock is currently poised to breakout past resistance near the $35.00 level. This past week rallies have been failing under the $35.50 level. A close over $35.50 could be used as a new bullish entry point or a level to add to positions.

Earlier Comments:
Our plan was to keep our initial position size small to limit our risk.

09/08/12 Treasury has announced an $18 billion sale of AIG stock
08/18/12 new stop loss @ 29.45
06/16/12 new stop loss @ 26.95
05/18/12 triggered at $28.25
05/05/12 The U.S. government is planning to sell 164 million shares at $30.50 and AIG will probably gap down on this news.
Move the trigger down to $28.25, and move the stop loss to $25.75.
04/28/12 adjust buy-the-dip trigger to $30.00 and stop to $27.40

Current Target:$ 39.00
Current Stop loss: 29.45
Play Entered on: 05/18/12
Originally listed on the Watch List: 04/07/12

Apache Corp. - APA - close: 92.48

Comments: 09/15/12 update:
It was a bullish week for APA. The stock has broken through resistance near $90.00 and powered through a cloud of moving averages in the $92-93 area. APA spiked toward the next level of resistance near $95 and its 300-dma on Friday. I would expect some profit taking but we can look for new support near the $90.00 level now. I am raising our stop loss to $84.90.

Current Target: $109.00
Current Stop loss: 84.90
Play Entered on: 06/18/12
Originally listed in the New Plays 06/16/12

Bank of America - BAC - close: 9.55

Comments: 09/15/12 update:
Financial stocks have been big winners with all the QE news from Europe and the U.S. Shares of BAC have been rocketing higher with a move from $8.00 several days ago to hit $9.79 intraday on Friday (+22%). BAC is short-term overbought here and I would look for a pullback.

Earlier Comments:
Currently we do not have a specific exit target. The plan has been to exit in the $12.00-15.00 zone.

09/08/12 BAC is breaking out. Consider buying 2014 calls on a dip near the $8.50-8.40 area
07/21/12 BAC reported earnings this past week and investors have decided to sell the news. The stock looks vulnerable here and readers may want to exit early!
05/19/12 BAC has pulled back to the 61.8% retracement
03/17/12 BAC has broken out from its multi-week trading range. Broken resistance near $8.30 should be new support.
...look for earlier comments in prior updates...

Current Target: $12.00-to-$15.00
Current Stop loss: see details above
Play Entered on: 08/29/11
Originally listed in the New Plays 08/27/11

Caterpillar Inc. - CAT - close: 93.17

Comments: 09/15/12 update:
Shares of CAT have seen a strong comeback. The stock is up about five points for the week and hitting new higher highs. The rally did stall at its 300-dma on Friday and CAT is short-term overbought here. I would look for another dip back toward the $90.00 level before it moves much higher.
I am not suggesting new positions at this time.

09/15/12 new stop loss @ 84.75
08/18/12 new stop loss at $81.75
08/10/12 trade opened on Friday morning @ $88.26
08/09/12 CAT closed above our trigger (which was 87.50)
08/06/12 adjust entry trigger to a close over $87.50
07/21/12 adjusted entry point to wait for a close over $88.00, stop loss 79.90

Current Target: $110.00-115.00
Current Stop loss: 84.75
Play Entered on: 08/10/12
Originally listed on the Watch List: 07/07/12

CH Robinson Worldwide - CHRW - close: 57.27

This is a bearish PUT option trade.

Comments: 09/15/12 update:
The stock market's major indices are breaking out to new highs. The transportation sector has seen a huge bounce. Yet CHRW has not budged.
The fact that CHRW has failed to breakout over resistance near $58 and its 100-dma and its long-term trend line of lower highs is good news for the bears. However, I remain cautious here.
I am not suggesting new positions at this time.

Our multi-month target is a drop to $50.50. We want to keep our position size small to limit our risk.

09/08/12 adjust stop loss to $60.25
07/28/12 lowering the stop loss to $60.75.
07/14/12 raising the risk on this trade by adjusting the stop loss to $63.25.
06/02/12 new stop loss @ 62.25

Current Target: $50.50
Current Stop loss: 60.25
Play Entered on: 05/07/12
Originally listed in the New Plays 05/05/12

Chevron Corp. - CVX - close: 117.25

Comments: 09/15/12 update:
CVX is a watch list candidate that has graduated to our play list. We wanted to wait for shares to breakout higher. The trigger was for CVX to close over $114.00. The stock closed at $114.18 on September 11th. Our trade opened the next day with CVX at $114.23. CVX has since shot higher. I would expect a pullback soon. Please note that I am raising our stop loss to $109.75.

09/15/12 new stop loss at $109.75
09/12/12 trade opened with CVX at $114.23
09/11/12 CVX closed over $114.00
09/07/12 CVX closed at $114.00. Wait for a close over $114.00.
Current bid/ask on our option is $5.75/5.90.

Chart of CVX:

Current Target: $129.00
Current Stop loss: 109.75
Play Entered on: 09/12/12
Originally listed on the Watch List: 09/01/12

Discover Financial - DFS - close: 39.31

Comments: 09/15/12 update:
I am a little surprised that DFS did not perform better last week. Shares did hit new highs on Thursday and Friday but DFS has not produced a convincing breakout from its $38-39 trading range. The trend is up but I am not suggesting new positions.

Please note that DFS is due to report earnings on September 27th, before the opening bell.
I'm not suggesting new positions at this time.

DFS almost hit our exit target of $39.75 for the 2013 calls.

NOTE: The $40.00 level could be round-number psychological resistance. I am suggesting we exit our 2013 calls when DFS hits $39.75. Our target to exit the 2014 calls is at $44.00.

Current Target: $39.75 for the 2013 call2, $44.00 for the 2014s
Current Stop loss: 34.75
Play Entered on: 07/05/12
Originally listed on the Watch List: 06/02/12

Eastman Chemical Co. - EMN - close: 58.64

Comments: 09/15/12 update:
EMN rallied to new highs but shares were paring their gains on Friday. I don't see any real changes from my prior comments. The $55-56 area should be support. I would look for dips near $56.00 as a new entry point.

Current Target: $69.00
Current Stop loss: 52.40
Play Entered on: 09/07/12
Originally listed on the Watch List: 08/18/12

HollyFrontier Corp. - HFC - close: 41.97

Comments: 09/15/12 update:
Shares of HFC soared to new highs thanks to a bullish market and an analyst upgrade on Friday. The stock has broken out past resistance near the $41.00 level. I would use a dip near $41.00 as a new bullish entry point.

In the news this past week HFC announced a special dividend of 50 cents a share payable on October 2nd to shareholders of record on September 25th.

Our target is $44.50 for the 2013 calls and $48.50 for the 2014 calls.

NOTE (option strike adjustment): HFC recently declared a special dividend of 50 cents a share payable on September 4th, 2012 to shareholders of record on August 27th. The option exchanges have adjusted some contracts by lowering the strike price by 50 cents. Our 2013 Jan $42 call is now a $41.50 call. The 2014 $45 call is now a $44.50 strike.

09/15/12 new stop loss @ 31.40
09/14/12 2013 call target hit at $36.00, option @ 3.70 (+78.7%)
09/08/12 readers may want to take profits early ahead of LEN's upcoming earnings report (which is expected some time in the next two weeks)

Comments: 09/15/12 update:
LLY did not make much progress this week. Shares rallied on Thursday only to see LLY give back most of those gains on Friday. I don't see any changes from my prior comments. Readers may want to exit early. Our final target for the 2014 calls is $48.50.

Comments: 09/15/12 update:
MON is still having trouble with resistance at the $90.00 level. The larger trend is still bullish with a trend of higher lows. Investors could use a close over $90.50 as a new bullish entry point but if you do I would raise your stop loss significantly.

Current Target: $99.50
Current Stop loss: 83.75
Play Entered on: 07/17/12
Originally listed on the Watch List: 07/14/12

Merck & Co - MRK - close: 43.62

Comments: 09/15/12 update:
MRK spent the week drifting higher and then reversed with profit taking on Friday. The stock lost -2.3% and closed on technical support at the 50-dma. This could be a new lower high for MRK. I suspect shares could see a deeper correction soon. Look for a dip toward the $41 area. We have a stop loss at $40.90. More aggressive traders will want to place their stop under the $40.00 mark instead.

Our long-term target remains the $47.50 level since we have the 2014 options.

Comments: 09/15/12 update:
Shares of MSFT are holding up pretty well considering all the news out recently about slowing PC demand. The stock has been struggling with resistance near $31.00 but closed up strongly on Friday.

I would be tempted to buy 2014 calls if MSFT can close over $31.35 again.

Current Target: $32.75 & 34.75
Current Stop loss: 28.45
Play Entered on: 06/01/12
Originally listed on the Watch List: 04/14/12

Pepsico, Inc. - PEP - close: 70.46

Comments: 09/15/12 update:
It was not a good week for PEP. Shares plunged on Wednesday on news the company's president was leaving to become the CEO of another company. Wednesday's drop broke through technical support at the 50-dma. Traders bought the dip near $70 but the short-term trend is down.

We have a stop loss at $68.75. More conservative traders may want to raise their stops closer to $70 or the 100-dma.
I am not suggesting new positions at this time.

Current Target: $79.00
Current Stop loss: 68.75
Play Entered on: 07/02/12
Originally listed on the Watch List: 05/26/12

Pfizer Inc. - PFE - close: 23.80

Comments: 09/15/12 update:
The recent action in PFE is troubling. The stock underperformed the market on Friday with a plunge to its 50-dma. You could also argue that the rally on September 6th is either a new lower high or the second half to a potential bearish double top.

I would not be surprised to see a correction toward $23.00, which should be support.
I am not suggesting new positions at this time.

Current Target: $28.00
Current Stop loss: 21.35
Play Entered on: 07/18/12
Originally listed on the Watch List: 04/21/12

QUALCOMM Inc. - QCOM - close: 64.88

Comments: 09/15/12 update:
Shares of QCOM are surging higher thanks to strength in tech stocks and leadership from AAPL. After a four-day rally in QCOM I would expect a little pullback soon. We can raise our stop loss to $59.40 since the $60.00 level should be new support.
I am not suggesting new positions at this time.

Current Target: $68.50
Current Stop loss: 59.40
Play Entered on: 08/10/12
Originally listed on the Watch List: 08/06/12

Charles Schwab Corp. - SCHW - close: 14.43

Comments: 09/15/12 update:
SCHW is up almost three percent for the week. Shares are challenging potential resistance near $14.50. I would look for a short-term dip back toward $14.00 before SCHW moves higher.
I am not suggesting new positions at current levels.

Current Target: $15.50
Current Stop loss: 12.90
Play Entered on: 09/07/12
Originally listed on the Watch List: 08/18/12

Spreadtrum Communications - SPRD - close: 20.99

Comments: 09/15/12 update:
SPRD is a Chinese semiconductor company. A big drop in the Chinese market on Monday produced a sharp reversal in shares of SPRD on September 10th. Thankfully there was no follow through and SPRD has been drifting higher since then. I remain bullish here but given the volatility readers may want to limit their position size in SPRD.

Current Target: $24.00
Current Stop loss: 18.90
Play Entered on: 09/07/12
Originally listed on the Watch List: 08/25/12

Skyworks Solutions - SWKS - close: 29.61

Comments: 09/15/12 update:
I am worried about SWKS. Shares were down four days in a row and only bounced on Friday. That bounce failed to close back above resistance at $30.00. The rally on September 6th, the lack of follow through on September 7th and the decline on Sept. 10th has created a bearish reversal pattern that also doubles as a bull-trap pattern.

More conservative traders may want to raise their stops. I am not suggesting new positions at this time.

Earlier Comments:
We want to exit the 2013 calls when SWKS hits $34.00 and exit the 2014 calls when SWKS hits $37.50.
FYI: The point & figure chart is bullish with a $40 target.

Comments: 09/15/12 update:
The recent performance in TJX is very underwhelming. The overall trend is still up. TJX is still trading near its highs. Yet the stock just isn't moving very fast. I am raising our stop loss again, this time to $43.40.
I am not suggesting new positions at this time.

Comments: 09/15/12 update:
It's been a good week for TWX with the stock advancing to new multi-year highs. Shares also garnered some positive analyst comments and a new, higher price target. It's possible the $45.00 level is round-number resistance. Therefore more conservative traders, especially if you're holding the 2013 calls, may want to go ahead and take profits now.
I am not suggesting new positions.

09/08/12 new stop loss @ 39.85
08/11/12 readers might want to lock in gains now (+49% on the 2013 calls) in just two weeks and then jump back in on a correction in the stock.
08/03/12 TWX opens at $40.66 (trade opens)
08/02/12 TWX meets our entry requirement with a close over $40.50

Current Target: $49.00
Current Stop loss: 39.85
Play Entered on: 08/03/12
Originally listed on the Watch List: 07/21/12

Union Pacific Corp. - UNP - close: 128.43

Comments: 09/15/12 update:
It looks like the railroad are leading the transportation sector higher. Shares of UNP are soaring with a seven-day rally. The stock added more than six points for the week and closed at new all-time record highs.
After non-stop seven-day run we should expect some profit taking soon.
I am raising our stop loss to $117.75.
I am not suggesting new positions at current levels.

09/15/12 new stop loss @ 117.75
08/18/12 new stop loss at $114.75
08/11/12 that looks like a brand new bearish engulfing candlestick reversal pattern on the weekly chart today. Let's see if there is any follow through.

Current Target: $139.00
Current Stop loss: 117.75
Play Entered on: 07/20/12
Originally listed on the Watch List: 06/30/12

U.S. Bancorp - USB - close: 34.93

Comments: 09/15/12 update:
Financial stocks have been performing well this past week. USB has rallied to new multi-year highs. Broken resistance near $34.00 should offer some new short-term support. I am raising our stop loss to $31.40.

Current Target: $39.50
Current Stop loss: 31.40
Play Entered on: 07/20/12
Originally listed on the Watch List: 05/19/12

Visa, Inc. - V - close: 134.25

Comments: 09/15/12 update:
Visa was showing relative strength this past week. The stock garnered positive comments and higher price targets from two different analysts. Shares rallied to new all-time, record highs.
When the market sees a pullback I would look for short-term support near $130.

Current Target: $149.00
Current Stop loss: 119.75
Play Entered on: 07/03/12
Originally listed on the Watch List: 06/30/12

Wells Fargo & Co - WFC - close: 36.13

Comments: 09/15/12 update:
WFC is a new trade. The stock was on our watch list with a trigger to buy calls when shares closed above $35.00. WFC met that entry requirement on Thursday with a close at $35.55. Our trade opened on Friday morning at $35.60. The $34-35 area has been major resistance for years so this breakout should signal the beginning of a big move higher.

If you're looking for an entry point I would wait for a pullback toward the $35.50 area. Odds are good that stocks will see some profit taking. Broken resistance near $35.00 should be significant support.

I am adjusting our long-term target to $44.00 but I would expect some resistance near the $40 level.
FYI: The point & figure chart is bullish with a $57 target.

Dropped Watch List Entries

New Watch List Candidates:

Investors have been pouring money into the industrial goods sector following the Federal Reserve's news QE announcement. Shares of DE have rallied past resistance near $80 and its 200-dma. I am suggesting we buy calls on a dip at $80.00 with a stop loss at $76.45. Our long-term target is $94.00.

Commodity-related names have also been soaring following the Fed's new QE announcement. JOY has broken out from its $48-58 trading range. The stock appears to have built a new bottom over the last three months.

I am suggesting we buy calls on a dip at $58.50. We'll use a stop loss at $54.50. More aggressive traders could buy the 2013 calls. I am listing the January 2014 calls. Our long-term target is $78.50.

MDR is another stock in the industrial goods sector. Shares have recently broken through several layers of resistance in the $12.00-12.50 area. I am suggesting a buy-the-dip trigger at $12.55 with a stop loss at $11.45. Our long-term target is $14.90. More aggressive traders could aim higher.

Buy-the-Dip trigger: $12.55 (stop 11.45)

BUY the 2014 Jan $15 call (MDR1418a15) current ask $2.40

Chart of MDR:

Originally listed on the Watch List: 09/15/12

Active Watch List Candidates:

Amedisys Inc. - AMED - close: 15.40

Comments: 09/15/12 update:
AMED came close but has not hit our buy-the-dip trigger yet at $15.05. I am adjusting our entry point strategy. We will wait for AMED to close over $16.10 and then launch positions the next day.
If triggered we'll use a stop loss at $13.90 and our target is $19.90. I am also changing the strike to the March 16 call.

Please note that AMED does have the January 2013 calls but I am suggesting the March 2013 calls instead.

Trigger: Wait for a close over $16.10 (stop 13.90)

BUY the 2013 Mar $16 call (AMED1316c16)

09/15/12 strategy change: wait for AMED to close over $16.10, then buy calls the next day. Use the March 2013 $16 call. Raise the stop to $13.90. Move the exit target to $19.90.

Originally listed on the Watch List: 09/08/12

Carnival Corp. - CCL - close: 37.96

Comments: 09/15/12 update:
CCL rallied 90 cents for the week and closed at a new 52-week high. I still don't want to chase it. We will adjust our buy-the-dip trigger to $36.00 and move our stop loss to $33.75.

Our long-term target is $42.00. FYI: The point and figure chart is bullish with a $48 target.

NOTE: Readers may also want to check out shares of RCL, which have a similar pattern.

Buy-the-Dip trigger: $36.00 (stop loss @ 33.75) *Small Positions*

BUY the 2014 Jan $40 call (CCL1418a40)

09/15/12 move the trigger to $36.00 and the stop to $33.75

Originally listed on the Watch List: 09/08/12

SPDR Gold ETF - GLD - close: 171.80

Comments: 09/15/12 update:
The combination of the ECB's new bond buying program and the Fed's new QE program is driving commodity prices higher, especially gold. The GLD has soared over the last four weeks. I don't want to chase it here. Nothing moves in a straight line for very long so gold will see some profit taking eventually.

We will move our buy-the-dip trigger to $165.50 and move our stop loss to $159.00. I am adjusting our exit targets. Plan to exit the 2013 calls at $174.50. Exit the 2014 calls in the $185-200 range.

Buy-the-Dip trigger: $165.50 (stop loss @ 159.00)

BUY the 2013 Jan $175 call (GLD1319a175)

- or -

BUY the 2014 Jan $200 call (GLD1418a200)

09/15/12 adjust the trigger to $165.50, stop to $159.00.
09/08/12 adjust the buy-the-dip trigger to $164.00 (up from $162)

Originally listed on the Watch List: 09/01/12

OfficeMax Inc. - OMX - close: 8.15

Comments: 09/15/12 update:
Wow! I thought OMX looked ready to move but I was not expecting a +24% rally in a week. Unfortunately our trade was not open. It definitely looks like we missed the move. I am removing OMX as a watch list candidate. Readers may want to keep it on their radar screen for a pullback. Right now OMX is very short-term overbought and due for some profit taking.

Trade did not open.

09/15/12 removed from the watch list.

Originally listed on the Watch List: 09/08/12

Ross Stores, Inc. - ROST - close: 68.04

Comments: 09/15/12 update:
ROST has been underperforming the market the last couple of weeks. The long-term trend is still up but the stock's recent performance is worrisome. I am removing ROST as a watch list candidate. Our trade never opened.

Our trade did not open.

09/15/12 removed from the watch list.

Originally listed on the Watch List: 08/18/12

Unisys Corp. - UIS - close: 22.64

Comments: 09/15/12 update:
UIS continues to drift higher but we don't want to chase it. I am removing UIS as a candidate. More nimble traders may want to consider buying calls on a dip near the 20-dma instead.

Trade did not open.

09/15/12 removed from the watch list.

Originally listed on the Watch List: 08/18/12

Wal-Mart Stores - WMT - close: 74.50

Comments: 09/15/12 update:
WMT has rebounded off its 50-dma. The stock is now testing resistance near $75 and its all-time highs set back in July this year. Short-term traders may want to buy calls if WMT can close over $75.50 and then aim for the $80 area. Yet for a long-term trade, I would not buy calls at current levels.
I am removing WMT as a candidate for now.